Pinetree Capital – The Wild Ride Continues

by JDH on March 31, 2007

My last specific commentary on PNP.TO – Pinetree Capital Corp. was published on March 21 ; I concluded by saying that “Right now I’m leaning towards lightening up, perhaps bringing Pinetree down to closer to 5% of the portfolio (from 9%)”. On March 28 I did just that; I sold a bunch of Pinetree at $23.70, which actually leaves Pinetree at 2% of my portfolio. Why?

The main reason is the stock has had a big run, and the higher it gets, the riskier it feels. Also, take a look at the chart:

Since October there are five distinct “tops” (marked with the numbers 1, 2, 3, 4 and 5). Top number 5 was $24.54 on March 27.

More interesting to me is the RSI, which is the graph at the top of the chart. I have drawn red lines from the tops to the RSI. As you can see, when the RSI gets over 70, the chances of a top increase. (Obviously this is not a perfect indicator; looking back to October the RSI got all the way up to the 90 range before Pinetree dropped from 18 to 14). In general, the higher the RSI, the more extended the stock is, and therefore the bigger the fall.

(For those of you who have no idea what I’m talking about, the Relative Strength Index (RSI) compares the magnitude of a stock’s recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100. Typically “recent” means 14 time periods, although any period can be used. The RSI that I am using should not be confused with other forms of “Relative Strength” rankings, such as the one that appears in Investor’s Business Daily, which is a comparison of this stock to other stocks. Using that indicator a Relative Strength of 80 means the stock out-performed, price wise, 80% of all other common stocks over the last year. Like most true indicators, the RSI only needs one stock to be computed. In order to avoid confusion, many people avoid using the RSI’s full name and just call it “the RSI.” A full description of RSI and other technical indicators can be found at stockcharts.com).

As for this past week, when I saw the RSI creeping upward I decided the time had come to lock in some profits, and as of today selling at $23.70 looks like a wise decision, since Pinetree closed Friday at $23.37, after a bumpy ride which we will discuss below. If the past is any indication, which it never is exactly, I would expect Pinetree to drop into the $22 range before resuming it’s upward push. The upcoming stock split should provide support, and the private placement, at $24.26 per unit, should also provide support, since the asset base of the company increases (assuming of course that they can sell those shares at that price). However, for now, I’m satisfied with having some cash. If the RSI drops into the 50 range I will consider buying more.

As for Friday, wow, look at the chart:

Why did Pinetree tank to below $18 on huge volume? There was no news; if fact, the company keeps announcing new acquisitions. The only plausible explanation was provided by p314285 over on the Forum who says it was a “fat finger” trade. Apparently a trader a trader meant to sell 1,200 shares at market and hit 1,200,000 instead. It would appear that TD was the broker, and they somehow managed to reverse the trade, which is why the chart above shows the stock tanking to below $18, but the low for the day reported at the top of the chart is $21.30. Interesting. I can only assume this is a meaningless fluke, and will have no long term impact on the price. (I also assume I will keep watching the Buy High Sell Higher Forum, since it’s a great source of current information).

However, it does “kinda make ya wonder”, doesn’t it? Friday’s action demonstrates the volatility in Pinetree, so if someday a newsletter writer gives a sell signal, the bottom will drop quite quickly. Long term I still like Pinetree, but for now I’m satisfied with a reduced position.

The discussion around PNP can’t help me think of a stock that I mentioned a few months back Longview. I thought and still do think that this is the next PNP. They buy large chunks of start-up commodity based companies that have good potential, they hit some big success, just like PNP, of course they are in the beginnning stages, were as PNP is now a well established sucess. When I mentioned it, it was in the 1.30 to 1.40 range, it is now moving up on 2 bucks. Their earnings are due shortly, people have thrown around the number of .40 cents for the 06 year, Peter Grandich has featured it as well. Interested in everyone’s thoughts.

You are probably correct; my only worry with LV.V is that it’s had a big run over the last six weeks, from under $1.20 to $1.94. I like the concept, but I think I’ll wait for a consolidation before starting to accumulate.

My guess is that PNP will have a hard time getting above the advertised price for the private placement (call it $12.13 post-split). The reason being that anyone with PNP shares and access to the proposed new issue will dump their existing shares at the proposed offering price and get the new shares plus the Â½ warrant for free. Worst case, the stock trades down and the deal is re priced at a lower level or cancelled all together (causing the stock to fall more). Either way they can get back in at a better price. If the deal goes through youâ€™ll probably see a week or so of selling before it trades through.